etc., where it is possible to make an estimate of the total output likely to be available. Depreciation is calculated per unit of output. Formula for calculating the depreciation rate is as under: - Acquisition cost - Scrap value Units of output 842 Example: If a mine is purchased for 50,000 and it is estimated that the total quantity of mineral in the mine is 1,00.000 tonnes, the rate of depreciation would be: r 50,000 - Rs. 0.5 1,00,000 Hence, the rate of depreciation is 50 paise per tonne. In case output in a year is 20,000 tonnes, the amount of depreciation to be charged to the profit and loss account would be Rs. 10,000 i.e., 20.000 tonnes * Rs. 0.50). This method is useful where the output can be measured effectively, and the utility of the asset is directly related to its production use. Thus, the method provides the benefit of correlating the amount of depreciation with the productive use of asset. 12.7 SALE OF AN ASSET An enterprise may sell an asset either because of obsolescence or inadequacy or even for other reasons. In case an asset is sold during the course of the year, the amount realised should be credited to the Asset Account. The amount of depreciation for the period of which the asset has been used should be written off in the usual manner. Any balance in the Asset Account will represent profit or loss on disposal of the asset. This balance in the Asset Account should be transferred to the profit and loss account. Illustration: A company purchased a machinery costing Rs. 60,000 on 1.4.1990. The accounting year of the company ends on 31st December every year. The company further purchased machinery on Ist October, 1990 costing Rs. 40,000. On 1 January 1992, one-third the machinery which was installed on 1.4.1990, became obsolete and was sold for Rs. 5000. Show how the machinery account would appear in the books of the company. The depreciation is to be charged at 10% p.a. on written down value method